July 23 (Bloomberg) -- A panel of Indian bureaucrats recommended allowing foreign companies to own up to 51 percent in multi-brand retail stores, according to a finance ministry official with direct knowledge of the matter.
The panel has proposed a minimum investment of $100 million by overseas retailers in the world’s second-most populous country, the official said, requesting not to be identified before a public announcement. “Finer details” are being worked out and the cabinet will take a final decision after consultations, according to the official.
The recommendations by the group that met yesterday in New Delhi may pave the way for Bentonville, Arkansas-based Wal-Mart Stores Inc. and Paris-based Carrefour SA to open supermarkets in the South Asian nation where Business Monitor International says retail sales may almost double to $785 billion in 2015 from $396 billion in 2011.
“We’ll see a lot of new retailers coming in, who will be keen on looking at India,” Kishore Biyani, managing director at India’s largest listed retailer Pantaloon Retail Ltd., said in an interview to Bloomberg-UTV. “It looks like a positive step. The industry needs money and the industry needs to grow.”
Retailers such as Wal-Mart, Carrefour and Cheshunt, England-based Tesco Plc have been lobbying for the chance to sell products to India’s 1.2 billion people, arguing they will lower prices and provide the scale that can improve local food networks. About 40 percent of India’s fruit and vegetables rot before they can be sold because of a lack of cold-storage facilities and poor transport infrastructure.
Inflation, Food Waste
“Inflation remains stubbornly high and food waste is a major concern because of limited cold storage facilities,” said Natalie Berg, co-global research director at Planet Retail in London. “A relaxation of FDI would enable the global retailers to invest in technology and bring efficiencies to the market, ultimately leading to lower prices for consumers.”
Wholesale-price inflation in India accelerated to an average 9.6 percent in 2010 and 2011, from 2.4 percent in 2009, as food and fuel prices rose. The central bank has raised its benchmark interest rate 10 times starting March 2010 to rein in gains.
“We’re following closely the potential evolution of legislation in India,” Carrefour spokeswoman Florence Baranes-Cohen based in Paris said in an e-mailed statement on July 21. “We are convinced that Carrefour can contribute to modernize distribution in India, to develop partnerships with local producers and make the supply chain more efficient.”
Arti Singh, senior vice-president for corporate affairs for Wal-Mart’s India operations in New Delhi, declined to comment.
Cash and Carry
India currently allows 51 percent ownership in retail outlets selling only one brand and 100 percent in cash-and-carry stores.
Should the Cabinet agree to the proposal it may anger small shopkeepers who say they will be forced out of business, potentially putting millions of jobs at risk, and add to political opposition to Prime Minister Manmohan Singh’s ruling Congress party. The government doesn’t need approval from parliament to change retail investment laws.
India was ranked fourth on U.S. consulting group AT Kearney’s Global Retail Development Index for 2011. The growing middle class, expanding economy and increasingly brand-conscious population will help push up retail sales, the consultant said.
India’s middle class in India may grow to 267 million people in the five years to March 2016 from 160 million people, according to the National Council for Applied Economic Research.
The nation’s economy has expanded at an average pace of 8.7 percent in the 6 years to 2010 compared with a 1.3 percent growth in U.S. gross domestic product.